The financial manager must execute his or her duties independent of the other departmental and strategic activities of the firm (i.e. in a vacuum) in order to properly maximize the value of the firm.
True / False
The greater the number of compounding periods within a year, then (1) the greater the future value of a lump sum investment at Time 0 and (2) the smaller the present value of a given lump sum to be received at some future date.
True / False
The board of directors is the highest-ranking body in a corporation, and the chairman of the board is the highest-ranking individual. The CEO generally works under the board and its chairman, and the board generally has the authority remove the CEO under certain conditions. The CEO, however, cannot remove the board, but he or she can endeavor to have board voted out and a new board voted in should a conflict arise. It is possible for a person to simultaneously serve as CEO and chairman of the board, though many corporate control experts believe it is bad to vest both offices in the same person.
True / False
The primary reason the annual report is important in finance is that it is used by investors when they form expectations about the firm’s future earnings and dividends, and the riskiness of those cash flows associated with earnings and dividends.
True / False
The balance sheet is a financial statement measuring the flow of funds into and out of various accounts over time while the income statement measures the progress of the firm at a point in time.
True / False
Ratio analysis involves analyzing financial statements to help appraise a firm’s position and strength (or weakness[es]).
True / False
The present value of a future sum decreases as either the discount rate or the number of periods per year increases, other things held constant.
True / False
The term IPO stands for “individual purchase order”, as when an individual (as opposed to an institution) places an order to buy a stock.
True / False
The Federal Reserve tends to take actions to increase interest rates when the economy is very strong and to decrease rates when the economy is weak.
True / False
Genzyme Corporation has seen its days sales outstanding (DSO) decline from 38 days last year to 22 days this implying that more of the firm’s suppliers are being paid on time.
True / False
In accounting, emphasis is placed on determining net income. In finance, the primary emphasis also is on net income because that is what investors use to value the firm. However, a secondary consideration is cash flow because that’s what is used to run the business.
True / False
A publicly owned corporation is a company whose shares are held by the investing public, which may include other corporations as well as institutional investors.
True / False
The amount shown on the December 31, 2018 balance sheet as “retained earnings” is equal to the firm’s net income for 2018 minus any dividends it paid.
True / False
High current and quick ratios always indicate that the firm is managing its liquidity position well.
True / False
The annual rate of return on any given stock can be found as the stock’s dividend for the year (which could be zero) plus the change in the stock’s price during the year, divided by the beginning-of-year price.
True / False
You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment?
a.
The riskiness of the investment’s cash flows decreases.
b.
The discount rate increases.
c.
The total amount of the cash flows remains the same but more of the cash flows are received in the earlier years and less are received in the later years.
d.
The discount rate decreases.
Other things held constant, P/E ratios are higher for firms with high growth prospects. At the same time, P/E’s are lower for riskier firms, other things held constant. These two factors, growth prospects and riskiness, may either be offsetting or reinforcing as P/E determinants.
True / False
Other things held constant, which of the following will not affect the quick (acid test) ratio? (Assume that current assets equal current liabilities.)
a.
Fixed assets are sold for cash.
b.
Cash is used to purchase inventories.
c.
Cash is used to pay off accounts payable.
d.
Accounts receivable are collected.
e.
Long-term debt is issued to pay off a short-term bank loan.
Which of the following should be the primary goal pursued by the financial manager of a firm?
a.
Maximize net income (profits).
b.
Maximize the firm’s net worth, or book value.
c.
Maximize dividends paid to common stockholders.
d.
Minimize variable operating expenses.
e.
Maximize the market value of the firm’s stock.
If your goal is to determine how effectively a firm is managing its assets, which of the following sets of ratios would you examine?
a.
profit margin, current ratio, fixed charge coverage ratio
b.
quick ratio, debt ratio, time interest earned
c.
inventory turnover ratio, days sales outstanding, fixed asset turnover ratio
d.
total assets turnover ratio, price earnings ratio, return on total assets
e.
time interest earned, profit margin, fixed asset turnover ratio
Which of the following is not a section of the Statement of Cash Flows?
a.
Net Change in Operating Activities.
b.
Net Change in Investing Activities.
c.
Net Change in Financing Activities.
d.
Summary of Cash and Cash Equivalents.
e.
All are sections of the Statement of Cash Flows.
A corporate stock that was issued last year would now trade in the __________ market.
a.
primary
b.
secondary
c.
money
d.
debt
e.
government securities
Which of the following is a primary market transaction?
a.
You sell 200 shares of IBM stock on the NYSE through your broker.
b.
You buy 200 shares of IBM stock from your brother. The trade is not made through a broker; you just give him cash and he gives you the stock.
c.
IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker.
d.
One financial institution buys 200,000 shares of IBM stock from another institution. An investment banker arranges the transaction.
e.
IBM sells 2,000,000 shares of treasury stock to its employees when they exercise options that were granted in prior years.
Casey Communications recently issued new common stock and used the proceeds to pay off some of its short-term notes payable. This action had no effect on the company’s total assets or operating income. Which of the following effects would occur as a result of this action?
a.
The company’s current ratio increased.
b.
The company’s times interest earned ratio decreased.
c.
The company’s basic earning power increased.
d.
The company’s equity multiplier increased.
Which of the following would indicate an improvement in a company’s financial position, holding other things constant?
a.
Both the inventory and total assets turnover ratios decline.
b.
The total debt to capital ratio increases.
c.
The profit margin declines.
d.
Both the current and quick ratios increase.
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